Do Federal Reserve Communications Help Predict Federal Funds Target Rate Decisions?

MAGKS Discussion Paper No. 25-2009

22 Pages Posted: 12 May 2009 Last revised: 11 May 2010

See all articles by Bernd Hayo

Bernd Hayo

University of Marburg - School of Business & Economics

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 11, 2010

Abstract

We explain federal funds target rate decisions using macroeconomic variables and Federal Reserve communication indicators. Econometrically, we employ an ordered probit model of a Taylor rule to predict 75 target rate decisions between 1998 and 2006. We find, first, that our communication indicators significantly explain target rate decisions and improve explanatory power in and out of sample. Second, speeches by members of the Board of Governors and regional presidents have a statistically significant and equal-sized effect, whereas the lessfrequent monetary policy reports and congressional hearings are insignificant. Third, our findings are robust to variations in the specification, including changes in the communication strategy. Finally, our communication indicator based on Federal Reserve speeches performs better in explaining target rate decisions than do newswire reports of Fed communications.

Keywords: Central Bank Communication, Federal Reserve Bank, Interest Rate Decision, Monetary Policy, Federal Funds Target Rate, Taylor Rule

JEL Classification: E43, E52, E58

Suggested Citation

Hayo, Bernd and Neuenkirch, Matthias, Do Federal Reserve Communications Help Predict Federal Funds Target Rate Decisions? (May 11, 2010). MAGKS Discussion Paper No. 25-2009. Available at SSRN: https://ssrn.com/abstract=1403130 or http://dx.doi.org/10.2139/ssrn.1403130

Bernd Hayo (Contact Author)

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Matthias Neuenkirch

University of Trier - Faculty of Economics ( email )

Universit├Ątsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
43
Abstract Views
477
PlumX Metrics